Common Cents & Tragedies on August 9, 2019

August 9, 2019, by John Norris

Most people reading this will know the stock market fell apart this past Monday (8/5/19). At one point, it looked as though the Dow Jones Industrial Average (Dow) would close down in excess of 1,000 points. In fact, I would have bet on that at some points during the day. The vibe was that bad. Fortunately, if you want to call it that, the Dow ended the day only 767.27 points lower than where it had started.

As I type here at 11:07 am CDT on 8/9, the index has gained about 423 points back. While a negative 340-point week isn’t good, or fun, it is far from a worst-case scenario.

The most oft-given excuse for Monday’s unpleasantness was the President’s announcement of even more tariffs on Chinese products entering the country. A secondary excuse was the hangover the markets had from the previous week’s FOMC meeting, and the collective realization the Fed might not be as dovish/accommodating as previously hoped. Combined, it would have been hard, if not impossible, for the markets to have ended the day in the black or green.

Then there was the horrible news out of Dayton and El Paso over the weekend. As more than one person told me: “there is no way that sort of bad news doesn’t play on investor psyche, no way.” Intuitively, this makes sense, and I was hard pressed to argue with them. Further, I kind of felt that way as well, as I can’t remember another time in my adult life when everything seemed so, well, unsettled. The headlines have been discomforting, to say the least.

How could that not impact investor behavior? That is a great question.

To answer it, I did a little work, a little research if you will, and asked my co-worker Sam Clement to do the same. The goal? Determining how the S&P 500, the stock market, performed after mass shootings and other calamitous events.

I choose the 10 deadliest mass shootings in US history. The locations (short description), estimated death toll, and dates of these are in order: 1) Las Vegas 59 (10/1/2017); 2) Orlando 49 (6/12/2016); 3) Virginia Tech 33 (4/16/2007); 4) Sandy Hook Elementary 28 (12/14/2012); 5) Sutherland Springs TX 27 (11/5/2017); 6) Luby’s Cafeteria Killen TX 24 (10/16/1991); 7) Walmart El Paso TX 22 (8/3/2019); 8) McDonald’s San Ysidro CA 22 (7/18/1984); 9) HS Parkland FL 17 (2/14/2018), and; 10) U of Texas Auston TX 17 (8/1/1966).

I took a look at the closing value of the S&P 500 index either on the day of the shooting OR the previous market close if the event happened over a weekend, and compared it to the closing value on the next trading day. Whew. That is a mouthful. Of these 10, the markets were up 6 times the next day and, obviously, down 4 times, including this past Monday.

If you factor this past Monday out since the markets would have closed lower anyhow (100% probability), you can reasonably draw the conclusion mass shootings have had little impact on the stock market. Admittedly, I/we were only looking at market closing values and not intraday trading activity.

Likewise, Sam didn’t find much either. Yes, the markets were down after 9/11 (when they were closed for a week), and slightly after the bombing at Pearl Harbor. However, the tsunami in 2004 and even the Gulf Wars didn’t hurt the markets over much more than a limited time. Hurricanes? Not so much, really. The same could be said of the BP oil spill. In truth, Sam struggled to find events with proverbial teeth on them. To be certain, an academic researcher might spend more time than we did and arrive at a slightly different conclusion. However, from what we found, and in large: the markets are somewhat cold-hearted or cold-blooded, you choose.

At first blush, this comes across as unseemly, base even. How can investors not but care about these horrific tragedies? These stains on our consciousness which can call into question the very nature of our existence? Are these people immune from emotion or feeling?

To be sure, investors aren’t immune from emotion or feeling, far from it. People are very emotionally attached to their money, extremely so, and I have yet to meet the first person that really wants to earn the same dollar a second time. That is a key statement. No one wants to earn the same dollar twice, and many will go to great lengths to avoid doing so.

However, key in the decision-making process is whether they believe market and economic conditions are conducive for a decline in economic activity and, therefore, corporate profitability. Is the exogenous shock to the ‘system’ strong enough to cause systemic decline? 9/11? That seems to be more the exception rather than rule due to the fact it happened in the world’s financial capital. Had terrorists blown up the Wells Fargo Tower on Regions-Harbert Plaza in downtown Birmingham, the markets probably would have forgotten about in relatively short order…as hard as it is/was for me to write that.

No? Well, consider the Dow was up 0.68% on 4/19/1995, the day of the Oklahoma City bombing which killed 168 and injured in excess of 680. It rallied another 0.55% the day after that. For grins, on the 4/21/1995, the Dow was up another 93 basis points. That’s right. As horrible as that tragedy in OKC was, the financial markets appeared to discount it.

I suppose what happens in the provinces stays in the provinces as far as the flow of money goes. That is a fair statement. If the tragedy at hand does NOT detrimentally impact the free flow of money through the world’s largest, most liquid, arguably most transparent financial system, it probably won’t register as much more than a blip in the annals of stock market history. A Federal office building in Oklahoma? A gang war in Chicago? Floods in Iowa? Tornadoes in Alabama? Wildfires in southern Georgia? Shootouts with alt-right militias in the Rockies? Hurricane Katrina? Even that wallop didn’t seem to faze the S&P 500 much. Yes, it was a little weaker the day after landfall (when it rallied), but it was up 1.07% from the close of trading on 8/26/2005 through the close on 9/2/2005 (Friday to Friday).

As strange as it may seem, that is actually the way you, as an investor, want it. You don’t want the world’s investment markets to react with their heartstrings. You want them to be dispassionate. The reason is simple: you have put your money at risk and you don’t want to earn the same dollar a second time. Again, I have yet to meet the first person who does.

Oh, that doesn’t mean you, as an individual, can’t show compassion or empathy. That doesn’t mean you can’t send up your prayers or send over your offerings. It doesn’t mean you can’t give to a worthy cause until it hurts. In fact, that is wonderful, desirable, and needed. By all means, be as emotional as you can or want to be, because you should be. However, when you ARE emotional, please do NOT make drastic decisions with your investments…because the markets aren’t going process the same information as you will.

After all, they can be cold-hearted.

 

Have a great weekend, and let’s pray/hope/demand an end to this foolishness.

 

John Norris